EUR/USD: Bears regain control around 1.0440 ahead of EMU CPI, US ISM

• EUR/USD resumes the downside well south of 1.0500.
• Germany June Final Manufacturing PMI came at 52.0.
• The US ISM Manufacturing will be the salient event later.

The selling bias re-emerged in the risk complex and drags EUR/USD back to the mid-1.0400s on Friday.

EUR/USD weak on risk-off trade, looks to data

EUR/USD rapidly fades Thursday’s rebound and refocuses on the downside on the back of the resumption of the buying pressure in the greenback, while the German 10y Bund yields attempt a mild rebound at the end of the week.

In the meantime, the risk aversion continues to dictate the price action around spot and the rest of the global assets, mainly in response to rising fears surrounding a potential global slowdown. In addition, the recent inaction of the ECB when it comes to its plans regarding the fragmentation issue also collaborates with the sour sentiment around the European currency.

In the domestic calendar, final figures saw the German and EMU Manufacturing PMI at 52.0 and 52.1, respectively, in June. Later in the session, ECB Board member F.Panetta us due to speak while the release of EMU flash inflation figures for the month of June will also be in the limelight.

Across the Atlantic, the final June Manufacturing PMI is due along the more relevant ISM Manufacturing.

What to look for around EUR

EUR/USD faces the re-emergence of the risk-off mood and the subsequent drop to the area well below 1.0500 so far this week.

In the meantime, the single currency continues to digest news from the ECB Forum in Portugal as well as any developments surrounding the bank’s plans to design a de-fragmentation tool in light of the upcoming start of the hiking cycle.

However, EUR/USD is still far away from exiting the woods and it is expected to remain at the mercy of dollar dynamics, geopolitical concerns and the Fed-ECB divergence, while higher German yields, persistent elevated inflation in the euro area and a decent pace of the economic recovery in the region are also supportive of an improvement in the mood around the euro.

Key events in the euro area this week: EMU, Germany Final Manufacturing PMI, EMU Flash Inflation Rate (Friday).

Eminent issues on the back boiler: Fragmentation risks. Kickstart of the ECB hiking cycle in July? Asymmetric economic recovery post-pandemic in the euro bloc. Impact of the war in Ukraine on the region’s growth prospects.

EUR/USD levels to watch

So far, spot is retreating 0.27% at 1.0454 and faces immediate contention at 1.0382 (weekly low June 30) seconded by 1.0358 (monthly low June 15) and finally 1.0348 (2022 low May 13). On the upside, a break above 1.0615 (weekly high June 27) would target 1.0773 (monthly high June 9) en route to 1.0786 (monthly high May 30).